TT RAM MOHAN's comments on the Indian economy, banking and current affairs

Friday, May 22, 2015

CEO pay: who will bell the cat?

What has done the most damage to the reputation of business and the free
market in recent years? It hasn’t been the G20 protests or the Occupy
tent cities. It has been the greed of those who demand and secure
rewards for failure in far too many of our large corporations.

That's a quote from the head of UK's Institute of Directors in an article in the FT. Do people at the top need variable pay? Does variable pay have to be in the form of shares or stock options or can CEOs be paid simply in cash? Can peformance be linked to measures such as productivity and not to share price increases which can happen for reasons independent of a CEO's efforts or even the company's performance?

These questions are being asked often in the UK, US and elsewhere. Nothing has happened so far thanks to powerful interests in the corporate world (and that includes top management of institutional investors who are supposed to hold corporate CEOs to account- it turns out they are paid the same way as CEOs, as the article points out).

Here in India, these questions are not even being asked. Instead, the media celebrates massive pay packets in the corporate world ('The club of million dollar CEOs') without regard to the implications for harmony in a very poor and unequal society. Okay, the politicians don't want to bell the cat. But how about the regulators, such as RBI and SEBI?